Three Good Reasons to Purchase a Second Home

Are you thinking of purchasing a second home? If so, you know the first good reason: You’ll enjoy it! You’ll love the comfort and convenience of having your own things in your own place, and you may even love being able to invite family and friends to share your vacations.

Next, when you finance that purchase through the Mike Clover Group at Homewood Mortgage, you’ll enjoy the same low rates as you would on a primary home purchase – and with only 10% down.

Did you know that you’ll also enjoy tax breaks? In fact, your second home can give you the same tax breaks as your primary home.

You can deduct mortgage interest on the purchase and on a second mortgage or line of credit if the money was used to improve the house. You can also deduct property taxes as long as those taxes are uniformly imposed. (In other words, special assessments that raise the value of your property don’t count.)

As with all things IRS, there are rules, regulations, and limitations. For instance, you can only deduct interest on up to a total of $1 million worth of debt. There are also limitations on deducting second mortgage interest if the two loans together create a debt in excess of the home’s fair market value.

To further complicate things, the IRS puts limits on your itemized deductions if you earn “too much” money. A married couple earning more than $311,300 falls under these limits. This is a topic to explore with your tax advisor.

A nice little bonus…

Say you’ve got a fantastic second home on the oceanfront in a location where your company’s CEO would love to vacation. As long as it’s for 14 days or less, you can rent that home to the CEO for any fee you like. If you stay under the 14 day limitation, you don’t have to report that income.

Should you decide to rent your second home for more than 14 days, you’ll need to keep careful records of the number of days rented, the number of days you used it, and the number of days it was vacant. You or your tax accountant will have to do some detailed calculations to separate expenses for the personal use from expenses related to the income-producing use.

When you use a house as rental property, you’re also entitled to take depreciation – sometimes. These are both issues to discuss with your tax advisor before making any decisions.

Do be aware that in some communities renting your house or condo unit will put you in violation of HOA regulations – so check before you proceed.

If your second home is a week-end get-away…

Perhaps you’ve purchased a second home just an hour or so away from your current home. Deciding which of those homes should be your primary home is something to discuss with your tax advisor if you have any plans to sell either home within the next 5 years.

As you probably know, a capital gain of up to $250,000 ($500,000 for married taxpayers filing jointly) is exempt from capital gains taxes as long as you consider it your primary home and have owned and resided in the home for 2 of the past 5 years.

Of course it’s not enough to just say “this is my primary home.” The IRS will consider other factors, such as where you work, where your mail is delivered, etc.

There’s a lot to consider, but the bottom line is that a second home will give you pleasure, and the tax breaks will help lessen the cost of ownership.

When you’d like to discuss your plans and learn how the Mike Clover Group can close your loan quickly, and with the lowest closing costs and interest rates available, give us a call at 800.223.7409

Mike Clover

Mortgage Banker

Homewood Mortgage,LLC

O: 469.621.8484

C: 469.438.5587

F: 972.767.4370

18170 Dallas Parkway

Ste. 304

Dallas, TX 75287

NMLS# 23477